Drawing on the accumulated experience of OECD member and partner countries, this report focuses on the major obstacles to growth and greater income equality through the analysis of the macroeconomic situation and of selected issues in public finances, labour markets, education, competitiveness and infrastructure.

Colombia has accomplished much in the past few years. Good economic policies have provided macroeconomic stability and living standards have gradually risen. Improved security has also contributed to a better economic environment. With the recovery of the global economy Colombia is enjoying inflows of foreign investment, growing demand for its exports and favourable terms of trade.

However, many structural challenges remain to boost the modest output growth, reduce the incidence of poverty and one of the most unequal income distributions in Latin America. Productivity growth its low, a considerable section of the potential labour force remains underutilised, and the informal sector is large. Weaknesses in infrastructure raise business costs, exacerbating low productivity at the firm level. International comparisons also indicate that, despite large improvements, the perceived quality of public sector governance is low. The tax system does not contribute enough to growth and has done little to improve income distribution. The education system   a major determinant of productivity and equity   is performing poorly. Well-designed social and education policies can help reduce poverty and expand opportunities for all members of society, regardless of their social background. This in turn can boost social cohesion and support growth.

Closing the income gap with OECD countries and enhancing the distribution of benefits of growth requires reforms in many fronts. Productivity can be enhanced by improving the functioning of labour and product markets, as well as investment in skills and infrastructure. A major tax reform coupled with reforms in transfer programs is needed to enhance collection of income taxes beset with low progressivity and exemptions. Coupled with reforms to labour regulations, including a more differentiated minimum wage, this can also reduce informality, and the high youth unemployment. Greater attention and resources to pre-primary education and drawing on lessons from OECD PISA research can help boost educational outcomes especially of vulnerable groups. The business environment would benefit from more competition, less regulation, and greater access to finance of smaller companies by removing the financial transactions tax and interest rate caps. Infrastructure can be enhanced by more careful prioritisation of projects, enhanced coordination among different government levels, increasing the inventory of good projects, and drawing on OECD experience with assessments and cost benefit analysis.  

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